FACULTY OF BUSINESS ADMINISTRATION Graduate Department Of Business

Administration of Strategic Management

Title: - Develop a report for ERCA

Prepared by: Derese M

Submitted to:

Addis Ababa, Ethiopia

FEB,2021

TABLE OF CONTENTS
LIST OF ACRONYMS...................................................................................................................i
EXCUTIVE SUMMARY...............................................................................................................ii
CHAPTER ONE.........................................................................................................................1
INTRODUCTION......................................................................................................................1
1.1. Background of the Organization......................................................................................1
1.2. Objective of Authority.....................................................................................................2
 1.3. Power and duties of Authority the ERCA shall have the powers and duties to...............3
CHAPTER TWO........................................................................................................................5
2.1. External and Internal Organization’s Environments........................................................5
2.1.1. Strategic Management .............................................................................................8
2.1.2. Organizational Strategies .........................................................................................9
2.1.3. ERCA mostly used Functional Strategy ..................................................................9
2.2. Implementation Strategy Monitoring and Evaluation...................................................10
2.3. How the Organization review and control it’s improve revenue..................................10
CHAPTER THREE....................................................................................................................11
3. Conclusions.......................................................................................................................11
3.1. Recommendations..........................................................................................................12
References.................................................................................................................................13
APPENDIX...............................................................................................................................14
LIST OF ACRONYMS
BPR Business Process Reengineering

BSC Balanced Scorecard

ERCA Ethiopian Revenue and Customs Authority

MVV Mission, Vision and Values

SMP Strategic Management process

SWOT Strengths, Weaknesses, Opportunities and Threats

VAT Value added tax

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EXCUTIVE SUMMARY

The respondents believe with the assertion that the organization has adequately analyzed
factors within the internal and the external environment besides a comprehensive analysis of
tax payers and competitors.

The SWOT Analysis is almost identical to the one under the previous period. The SWOT
Analysis in some cases is mixed with the ways of exploiting the SWOT or the strategy.

The findings from the interview indicate that the strategy formulation process in ERCA
doesn’t participate all employees on a bottom up approach. Outlining branches aren’t also
involved in the process. The process gives less emphasis to the long term revenue generation
of the country.

ERCA’s mission statement clearly describes the purpose or main activity though it fails to
make mention of the main tax payers & the main services it provides. The vision is simple and
easy to understand though it is not realistic. As per the questionnaire findings, the vision is
not effectively communicated to members of the organization.

The role of individuals and work units in accomplishing the strategic plan is not
communicated well. The tolls used for monitoring the evaluation of strategies and the
standards in light of which evaluation of strategies is evaluated are clear.

Strategy implementation in the organization is affected by many challenges such as lack of

acceptance by and support from the top management, poor communication of the strategy,
absence of proper knowledge and skills, key personnel leaving the organization, unawareness
about the strategy specially about the goals and objectives, poor coordination and absence of
reward systems.

Strategy monitoring and evaluation in ERCA is affected by absence of effective monitoring

and evaluation system, lack of proper knowledge and skills, absence of timely feedback and
false report on progress.

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CHAPTER ONE
INTRODUCTION

The Ethiopian revenues and customs authority (ERCA) is the body responsible for collecting
revenue from customs duties and domestic taxes. In addition to raising revenue, theca is
responsible to protect the society from adverse effects of smuggling. It seizes and takes legal
action on the people and vehicles involved in the act of smuggling while it facilitates the
legitimate movement of goods and people across the border. The ERCA traces its origin to
July 7, 2008 as result of the merger of the ministry of revenues, the Ethiopian Customs
Authority and the Federal Inland Revenues into one giant organization.

1.1. Background of the Organization

The Ethiopian revenues and customs authority (ERCA) is a unilateral Organization
established in 2008 with proclamation No. 587 merging the Former three revenue collection
sector namely Ministry of Revenue, Federal Inland Revenue Authority and Ethiopian
Customs Authority.

ERCA is a unilateral institution responsible to collect revenue that the economy generates.
The head quarter and its affiliated branch offices including the Addis Ababa city
administration require qualified personnel to run the day to day activity of the authority.
However, current trend indicate that there is a big gap in skill and knowledge to provide
efficient service. The administration had inefficient system to control taxpayers who fail to
declare their actual income in order to reduce their tax bill and the federal government’s
revenue.

Strategic Management refers to the series of decisions taken by management to determine the
long-term objectives of the organization and the means to achieve these objectives. As a set of
managerial decisions and actions determining the long-run performance of an organization, it
identifies what needs to change in an organization and how that will take place. It consists of

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four basic elements namely environmental scanning, strategy formulation, strategy
implementation and evaluation and control.

Environmental scanning also referred to as environmental analysis is the acquisition and use
of information about events, trends and relationships in an organization’s environment, the
knowledge of which would assist management in planning future courses of action. It is
crucial to identifying the main issues affecting organizations by helping to detect SWOT.
Strategy formulation consists of determining the organization’s mission, goals, and objectives,
and selecting or crafting an appropriate strategy. Strategy implementation or strategy in action
has to do with making strategy happen or making sure that created and planned strategies
actually work in practice

1.2. Objective of Authority

ERCA has the following objectives:

To establish modern revenue assessment and collection system; and provide customers with
equitable, efficient and quality service, To cause taxpayers voluntarily discharge their tax
obligations, To enforce tax and customs laws by preventing and controlling contraband as
well as tax fraud and evasion, To collect timely and effectively tax revenues generated by the
economy; To provide the necessary support to regions with a view to harmonizing federal and
regional tax administration systems.

Vision

To be a leading, fair and modern Tax and Customs Administration in Africa by 2020 that will
finance government expenditure through domestic tax revenue collection.

Mission

ERCA will contribute to economic development and social welfare by developing a modern
Tax and Custom Administration that employs professional and highly skilled staff who

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promote voluntary compliance amongst individuals and businesses, and take swift action
against those who do not comply.

Values

ERCA will understand its customers and their needs, treat them with trust and respect and
help them meet their obligations. We will act with integrity transparency and
professionalism, and enforce customs and tax related laws. We will work closely with stake
holders and ensure the participation of women.

Business Drives

The key business drivers have been identified as follows:

o Revenue collection
o Reliable data and statistics
o Trade facilitation
o Process oriented management
o Enforcement and security
o Good governance

1.3. Power and duties of Authority the ERCA shall have the powers and
duties to:
Establish and implement modern revenue assessment and collection system;

Provide, based on rules of transparency and accountability, efficient, equitable and quality
service with in the sector; properly enforce incentives of tax exemptions given to investors
and ensure that such incentives are used for the intended purposes;

Implement awareness creation programs to promote a culture of voluntary compliance of

taxpayers in the discharge of their tax obligations;

Carry out valuation of goods for the purpose of tax assessment and determine and collect the
taxes;
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Conduct study and research activities with greater emphasis to improve the enforcement of
customs and tax laws, regulations and detectives and the collection of other revenues; and
based on the result of the study and research initiate laws and policies and implement the
same up on approval;

Collect and analyze information necessary for the control of import and export goods and the
assessment and determination of tax; compile statistical data on criminal offences relating to
the sector, and disseminate the information to others as may be necessary;

Organize attaining center where in to build employees’ capacity; and design appropriate
training schemes; examine goods and means of transport entering into or departing from
Ethiopia through customs ports’ frontier posts and other customs formalities are complied
with; provide information and appropriate support to the Federal police in the control of illicit
trafficking of goods and combating contra band; and cause appropriate actions be taken in
accordance with the law;

Investigate customs and tax offences, institute and follow up criminal proceedings in courts;
for the discharge of such responsibilities, organize its own prosecution and investigation units
and supervise their performance;

Decide the place where import and export goods are to be deposited; establish warehouses,
issue warehouse licenses; supervise duty-free shops; control the handling and care of
deposited goods; suspend or revoke warehouse licenses; collect license and service charges;

Exercise the power and duties that were granted to the Federal Inland Revenue Authority and
the Customs Authority by other existing laws; perform such other related activities as required
for the attainment of its objectives.

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CHAPTER TWO

2.1. External and Internal organization’s Environment

Of Ethiopian Revenue and Customs Authority need change because their internal and external
environments organize and manage operations must be introduced.

Opportunities- external factors that the origination may be able to exploit to its advantage;

 Economy of the country is growing

 A huge expansion of tax administration education institutions
 Large and diverse tax payers of tax compliance
 Improving awareness about the need for Research and Development

Threats- Current and emerging external factors that may challenge the organization
performance;

 Global financial crisis leading to low funding opportunity

 Competitive disadvantage in attracting funding

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  Brain drain
 Regulatory frameworks and processes are lengthy

Strengths-Internal capabilities that may help organization reach its objectives;

 Reforms to improve research infrastructure.

 The administration of tax collection will be strengthened to ensure more efficient tax
collection through training of staff, awareness campaigns and computerizations.
 Government should continue to ensure that tariff policy enables our local industries
to competitive.
 Specifically aggressive action should be taken to block revenue leakage on light duty
goods and bulk items.
 Government should ensure fair tax administration base on the principle of derivation
of tax proceeds; it is recommended that the tax law should be enacted.
 VAT has become a veritable source of revenue earning for government and therefore
needs to be strengthened and expanded to broaden the tax base and to bring the VAT
administration closer to the tax-payers, new local VAT offices should be established
all over the state.

Weaknesses- Internal limitations that may interfere with organization ability to achieve its
objectives;

 Limited administrative capacity within organizations.

 Limited staff capacity to carry out tax compliance, which also puts extreme burden
on few staff that can conduct tax compliance but do not have protected research
time.
 In adequate staff or manpower to carry out the assignment efficiently and thus has
contributed to the low revenue generated for the state.
 Mismanagement of tax collected: taxes collected were not been utilized for the
purpose for which it was collected thus makes tax payers not give out their wealth
for the state.

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  Bribery and corruption: in this day, tax collector personal interest has over ride
their official interest in the performance of their duties consequently affects revenue
generation for the state.
 Lack of voluntary compliance from tax payers these attitudes of tax payer cause
tax avoidance evasion and delinquency.
 Poor accounting records, must business traders professional do not keep proper
records of their income and expenditure.

Analytical tools PESTLE analysis

•PESTLE is an analytical tool which considers external factors and helps you to think about
their impacts

The factors in PESTLE analysis

•P – Political

The current and potential influences from political pressures

•E - Economic

The local, national and world economic impact

•S - Sociological

The ways in which changes in society affect the project

•T - Technological

How new and emerging technology affects our project / organization

•L - Legal

How local, national and global legislation affects the project

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•E - Environmental

Local, national and global environmental issues

Internal environments

Generally, the first aspect of a situation analysis involves the critical evaluation of the
rogation’s internal environment with respect to its objectives, strategy, and performance,
allocation of resources, structural characteristics, and political climate.

 Review of Current Objectives, Strategy, and Performance

It may also be necessary to reassess the firm’s Organization goals if the objectives prove to be
out of date or ineffective

 Availability of Resources

This review includes an analysis of financial, human, and experience resources, as well as any
resources the firm might hold in key relationships with supply chain partners, strategic
alliance partners, or customer groups.

 Organizational Culture and Structure

The organization manager should review current and anticipated cultural and structural issues
that could affect business activities.

2.1.1. Strategic Management

The most critical challenge facing most organizations today is coping up with today’s game of
business, dynamism. For a past few decades, organizations have been facing fierce
competition in their external environment in which they operate. Strategic Management is one
of the efforts of management to confront situations that arise in an organization’s daily routine
while trying to achieve organizational goals and objectives

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2.1.2. Organizational Strategies

 Establish modern revenue assessment and collection system; and render fair, efficient
and quality service;
 Assess, collect and account for all revenues in accordance with tax and customs laws
set out in legislation;
 Equitably enforce the tax and customs laws by preventing and controlling contraband
as well as tax fraud and evasion;
 Collect timely and effectively all the federal and Addis Ababa tax revenues generated
by economy, and provide the necessary support to the regional states with the
objective of harmonizing federal and regional tax administration systems.

2.1.3. ERCA mostly used Functional Strategy

Functional strategic management requires an understanding of organizational resources and

competencies as well as how each contributes to the formation of organizational strengths and
ultimately to the development of a competitive advantage. It approach to achieve revenue
objectives and strategies by maximizing modern revenue assessment and collection system;
and provide customers with equitable, efficient and quality service, To cause taxpayers
voluntarily discharge their tax obligations, To enforce tax and customs laws by preventing
and controlling contraband as well as tax fraud and evasion, To collect timely and effectively
tax revenues generated by the economy; To provide the necessary support to regions with a
view to harmonizing federal and regional tax administration systems.

Used opportunities Economy of the country growing to establish modern revenue assessment
and collection system; and render fair, efficient and quality service. Counter external threats;
equitably enforce the tax and customs laws by preventing and controlling contraband as well
as tax fraud and evasion; and Brain drain.

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2.2. Implementation Strategy Monitoring and Evaluation

Implementation strategy monitoring or evaluation is undertaken to assess effectiveness of

strategies and actions. Strategy monitoring and evaluation in ERCA begins with collection of
information from the different work units on their performance. In a similar fashion to
recommend strategy monitoring and evaluation process in ERCA begins when different work
units send quarterly and annual report on performance of cascaded Revenue plans to the
strategic management team. The system implemented by the corporation for the purpose of
monitoring and evaluating the implementation of strategies is the BSC which is developed by
Kaplan and Norton. Findings from the questionnaires interview to the management staff and
the employees show that the tools ERCA uses for measuring implementation strategies and
respective standards are clear. The management should put in place proper tools for
monitoring the implementation of strategies and the standards in light of which performance
is evaluated should also be clear.

2.3. How the organization review and control it’s improve revenue?

The final goal of the overall process of the organization whether doing new business Process
reengineering is control and review with the ways of the power to same how fill the execution
or implementation skill gap fulfillments and some of this regarding the tax authority is:-Focus
on wildly important jobs because people are naturally wired to focus on only one thing at a
time or at best very few with excellence. Create a compelling score board of current target and
deadline results. Hold each other accountable all of the time in the most effective teams.
Translate lofty goals into specific actions of vast difference b/n the stated strategy and the real
strategy. Institutionalizing is a culture of execution /implementation through measurement.
Conducting continuous session with taxpayers and its employees with regards to
implementation process is necessary.

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CHAPTER THREE

3. Conclusions

 From the summary of findings, it can be concluded that environmental scanning

activities of the corporation are commendable enough though there are some grey
areas that need improvement. The organization comprehensively assessed both the
external and internal environment though it failed to involve objectives, strategy, and
performance, allocation of resources, structural characteristics, and political climate.
 The strategy formulation process is not participatory. Some of the goals and
objectives aren’t also measurable being a hurdle to the process of evaluating the
progress of their implementation. The vision of the Organization is not also realistic
besides the mission’s failure to reflect the major revenue collection and revenue
generation from ERCA.
 The works done in regard of ensuring effective implementation of strategies don’t
suffice to ensure effective strategy implementation. Failure to effectively
communicate the strategy has impact on the level of understanding of the strategy and
commitment to ensure its achievement.
 The Strategy monitoring and evaluation scheme in the organization is appropriate as
the standards and tools based on which implementation of strategies are evaluated are
clear.
 The factors or barriers affecting the implementation of strategies are mainly internal
and under the organization’s control. The influence of external factors outside the
organization’s control in terms of affecting the strategic management process is
minimal.

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3.1. Recommendations

 As top management engagement in strategy formulation encourages a sense of ERCA

of the strategy and further develops organizational capabilities, ERCA should make
sure that all employees have a say in the process.
 The top management and the strategic management team shall make sure that the
strategy formulation process involves branches outside Addis.
 ERCA should review its mission statement in a way it could reflect at least some of
its organizational strategy.
 The vision should be revised in a way it could have a more realistic tone. To ensure
this, it should be crafted in a way it aligns with its situation though alignment with the
country’s vision and that of similar institutions is also commendable.
 It is recommended that the organization need to make all of its objectives measurable.
 The strategic management team should be able to effectively communicate the
strategic plan to all employees so that they will have the same understanding and
Establish modern revenue assessment and collection system; and render fair, efficient
and quality service;
 The strategic management team should be able to render professional advice to the
different work units on how to Collect timely and effectively all the federal and Addis
Ababa tax revenues generated by economy, and provide the necessary support to the
regional states with the objective of harmonizing federal and regional tax
administration systems.
 The strategic management team should also put into place a system to ensure that
build on the organization’s strengths and correct its weaknesses in order to take
advantage of external opportunities and counter external threats. These strategies
should be consistent with the mission and major goals of the organization.
 Training and development is vital for the improvement of individual job performance
and organizational goal attainment.

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References

 Alkhafaji, A.F. (2003). Strategic Management Formulation, Implementation, and

Control in a Dynamic Environment. USA: The Hawthorne Press.
 Ethiopian Revenues and Customs Authority (2020). Strategic Management plan. Addis
Ababa: Unpublished.
 Ethiopian Revenues and Customs Authority (2020). Top management oral interview.
 Ethiopian Revenues and Customs Authority (2020).www.erca gov.et.
 Hussey, D. (1998). Strategic management; from theory to implementation. 4th ed.
Britain: Pergamon Press.
 Wheelen, T. L. and Hunger, J. D. (2012). Strategic Management and Business Policy
towards global sustainability. 13th ed. Prentice Hall.

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APPENDIX

I. Interview Guide for an interview to be held with top management

1. How do you explain ERCA basic strategy?
2. How do you see appropriateness of the organization’s mission, values and vision?
3. Describe the strategy implementation process of the organization?
Organizational structure, culture, distribution of resources, managing of human
resources,
4. How do you use BSC in the organization? A communication tool, performance
management system or strategic management system

II. Concluding Questions

1. What are the common challenges ERCA faces in the strategic management process?
Describe this in light of each component of the strategic management process

2. What measures do you recommend to improve the strategic management system?

N.B: The organization doesn’t have financial statement because doesn’t profit business
company and not payment tax for government but, the activity of revenue collection the
government; the organization has declaration form of financial statement and balance sheet
for the tax payers. I attach declaration form the next page or below this page.

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Develop a report for the following strategic issues on the selected
organization.

1. Identify organizations vision, mission, value as well as objectives.

2. Analyze the organization’s external competitive environment to identify opportunities
and threats.
3. Analyze the organization’s internal operating environment to identify the
organization’s strengths and weaknesses.
4. Select strategies that build on the organization’s strengths and correct its weaknesses
in order to take advantage of external opportunities and counter external threats.
These strategies should be consistent with the mission and major goals of the
organization. They should be congruent and constitute a viable business model.
5. Evaluate Implementation strategy of the organization. (N.B: at least the financial
statement of the company for the past two consecutive years should be attached to the
document.)
6. How the organization review and control its business?
Guide lines/contents for the Report:

i. Cover page
ii. Table of content
iii. Back ground of the organization
iv. Main body in relation with the order of the questions
v. Conclusion
vi. Recommendation
vii. Reference

Submission date: June 25/2020

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